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32. An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?
a. Each stock in the portfolio has its own beta.
b. Each stock contributes to the beta of the portfolio.
c. An investor can lower the risk of this portfolio by her choice about personal leverage (lending or borrowing).
d. all of these
33. The weighted average cost of capital (WACC) can be computed using the formula: WACC = (1 - L)re + L(1 - T)rd. Which of the following statements is true?
a. L is debt divided by firm value.
b. T is the personal tax rate.
c. rd is the required return on equity.
d. none of these
34. You are considering the capital budgeting project j with a life expectancy of 20 years. The short-term government rate (rf) is 5%, the beta of firms that produce products similar to project j is 1.2, and the return on the market (rm) the last 20 years has been 10%. What is the cost of capital for this project?
d. cannot tell
36. Calculate the IRR for the following investment project: initial investment is $75,000; inflows are $20,000 for the next five years; required rate of return is 15%. (Round your answer to the nearest whole percentage)
37. Your firm uses the payback method but does not discount any of the cash flows. Calculate the payback for the following investment: A machine costs $200,000 with after-tax installation costs of $15,000. After-tax cash inflows are expected to be 36,000 per year for the next seven years.
a. greater than 6
b. 5.85 years
c. 5.14 years
d. 4.42 years
38. Compute the NPV for the following project. The initial cost is $5,000. The net cash flows are $1,900 for four years. The net salvage value is $1,000 when the project terminates. The cost of capital is 10%.
39. Each year for eight years, an investment will generate incremental sales of $8,000 and cash operating expenses of $2,500. The applicable tax rate is 30% and depreciation is $2,000. What is the net cash flows for each of the eight years?
40 Compute the IRR for the following project. The initial cost is $10,000. The net cash flows are 3,800 for four years. The net salvage value is $2,000 when the project terminates. The cost of capital is 10%.
Can you please show me the calculations used to answer problems 34-40 so that I will know how to do them?
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